More on Joe Salerno’s Critique of Economism

By: Jeff Deist

Dr. Joe Salerno recently penned a response to economist Tyler Cowen’s call for “State Capacity Libertarianism.”  It’s very important essay, and I encourage you to read it. It gets to the heart of a very important and broad question in America today, namely whether what we can call the “managerial capitalism” of the 20th and early 21st century is working. 

Embedded in Salerno’s broader critique of Cowen, focused on the predatory nature of state power, is this important point about the unsatisfying doctrine of economism:

The bulk of Henderson’s [economist David Henderson, another Cowen critic- ed.] article is thus confined to citations of research and anecdotes indicating how the free market and entrepreneurship would solve or alleviate the problems raised by Cowen, including traffic congestion, low-quality K-12 education, and climate change. Near the end of his article Henderson rehearses the venerable public choice argument demonstrating that the perverse incentive structure confronting politicians, bureaucrats, and voters in the political arena produces the inefficient outcomes that Cowen bemoans. This contrasts with the alignment of incentives guiding and coordinating the actions of consumers and producers in the market economy, which would conduce to a more efficient resolution of most of these problems.

Henderson does score cogent points against Cowen. But, in the end, Henderson’s version of libertarianism amounts to little more than economism, the narrow and hollow doctrine of enlisting market forces to improve social efficiency under the existing political regime. Henderson’s economistic approach to libertarianism is epitomized in Milton Friedman’s classic work Capitalism and Freedom.

Economism, an older cousin of public choice theory, is a throwback to the idea of homo economicus. Economism sees individuals as relentless rational actors, always seeking to maximize their (narrowly) economic well-being. Public choice argues for applying this focus to state actors as well, and thus for using policy as a tool for greater economic efficiency. As Salerno puts it, “economism attempts to enlisting market forces to improve social efficiency under the existing political regime.” It seeks to align the “incentives guiding and coordinating the actions of consumers and producers in the market economy, which would conduce to a more efficient resolution of most of these problems.”

But is this wise, or even realistic? Should the state apparatus be charged with nudging humans toward more efficient (read: aggregate) economic outcomes? Does the Austrian tradition counsel economism, and does broader support for laissez-faire policy compel it? 

Of course not, says C Jay Engel writing at Bastion magazine:

The Viennese students of civilization would never have talked in the way Cowen does. Contrary to the “free market” economic establishment, the Austrians, and especially Misesians, completely deny the neo-classical construct of homo economicus. As conservatives such as Russell Kirk rightly point out the actual unrealistic nature of this construct, the Austrians are forever exempt from the criticisms related to the “economism” of man. It is true that man does not live by bread alone, as Wilhelm Ropke echoed the Biblical phrasing; his sociological needs, fulfilled by his community setting and connection to place and kin, are often more important than a singular emphasis on his material opportunities. The Austrians recognized this more than the typical policy-advising economists of the twentieth century.   

Furthermore, we need not consider man’s higher or spiritual motivations to refute such a narrow view of his conduct. As Engel explains, only the rigorously subjectivist perspective of the Austrian school offers a rational critique of economism:

…no school of economic thought is as enduringly relevant as the Austrian School. Only they, with their subjective theory of value, can account for the displeasure of those Westerners who are not experiencing the mythical wonders of booming GDP. It was they who derided the absurdity of using formulas of aggregation to pronounce the successes of central economic decision making. It was the Austrians who alone among economists could account for the fact that mankind’s wants were so much more complicated and complex than just a cold material prosperity could fulfill.

Subjectivism is what separates “efficiency” from real value. The cold-hearted free-market economist, always portrayed as fixated on material wants, cannot win hearts and minds in the arena of social science with this bone dry approach. On the contrary, Misesean economics is human in orientation, always focused on actors rather than aggregates. Real people act, real people imbue their actions with value knowable only to them.

Ultimately, Cowen and economism turn what ought to be robust social science into a handmaiden for state efficiency. Political liberty becomes nothing more than a mechanism for “better government.” But as Dr. Salerno reminds us, this narrow view disregards the inherently predatory nature of the state itself: 

Libertarianism becomes in their hands a recipe for constraining state action in the interest of optimizing social efficiency. This economistic, hollowed-out version of libertarianism may be called “state efficiency libertarianism.”

In contrast, hard-core, muscular libertarianism begins with the insight that the state is fundamentally different in nature from society and economy, and stands wholly apart from them.

Powered by WPeMatico